Business
An economic wave is about to hit that will be fantastic for investors
Maybe we’re not really that connected. Perhaps we are basing our financial decisions on financial data that is wrong. And just because we’re all using the same wrong information doesn’t make it right. As someone who tries to make sense of everything for club members, I find myself confused – not because the possibilities are so difficult to put together, but because the results are wrong. On CNBC last week, I knew I was going down an arrogant rabbit hole when I said that the Consumer Price Index (CPI), released on Wednesday, radically overstated some of the inputs. (The CPI collects data from retailers and residential units to measure the change in the prices people pay for goods and services, including fuel, utilities and food.) My co-anchor David Faber was incredulous and asked how I knew that. I told him it̵[ads1]7;s because I do a better job than the US Bureau of Labor Statistics, which calculates the index. “Yeah sure,” David said, laughing. But I meant it. I explained that I check in with several people in stores and pulled off the top ten clothing outlets. I also aggregate e-commerce prices and regularly check for sales, all the way down to Ollie’s Bargain Outlet (OLLI), the budget retailer that I love so much, especially my store in Quakertown, Penn. David pressed on and said it was unthinkable that I knew better. I came right back muttering that one of the advantages of having no real life is that I get the advantage of those who do, including the scientists who compile the data. Of course, you can see that these researchers check in on many areas. But the question is: Do they check in well? Are they reading the research that shows this year looks set to be more of a promotional year than last (meaning prices are going to go down, maybe way down)? Do they go to the shops, like I do, and write down the prices? Do they compare the prices at Costco (COST) to the prices at the mall? Of course not. What is it that makes me so fixated on all this? Because when I was a little boy, my father took me to sales calls every Saturday. Pop sold boxes and bags to retailers, along with wrapping paper, scotch tape and stretch bands. Every week we traveled in the Philadelphia area, South Jersey, Allentown, Bala Cynwyd, New Hope, you name it. Pop went into a mall and he had the bag of samples in one hand and my hand in the other. I still remember how much I loved it. I miss the strong hand in my little paw. I didn’t really understand what my dad did or why everyone seemed so mean to him when he was so kind. But it’s a seller’s lot, then and now. We went everywhere: shirt stores, menswear, jewelry stores, hobby shops. Pop never succeeded in selling, perhaps because he liked Shakespeare, Renoir and opera too much. He saw work as something he had to do to get by. Maybe he was trying to show me that there was more to life than getting your head kicked in by every cashier, assistant store manager and warehouse manager. As I got older he taught me more about what sells and why. He took me to Kmart and Sears and Caldor and Bradlees and explained why each one would never make it. Then he took me to Walmart (WMT) and explained, one by one, why his clients wouldn’t make it. When he took me to Costco (COST), he said that Walmart had finally met its match, and deservedly so given how many customers Walmart had thrown away. If I were to sum it all up, I learned two big things. One was that my father really loved me, which was in doubt when we clashed politically and after my mother died so early. And secondly, I learned to spot a bargain. You see, my father just didn’t take me to these places, he taught me about his first job when he came back from the war. He sold slacks at Gimbels and was fired for not selling enough of them. He had made a survey of all pricing in that taper department store as well. Pop knew who had the lowest prices because we needed the lowest prices. Do the researchers know the lowest prices? Were they taught by a man who spent his entire life studying prices and spent thousands of hours driving them into his son’s head with the precision of a Black & Decker drill? No. Although I don’t know some of these inputs as well as others, I do know that they are not always correct. They may even be more wrong than right. I owned a restaurant for a dozen years and studied prices endlessly, trying to figure out exactly what would bring people in and what would turn them off. I know how to talk to people in chain restaurants. Same with liquor stores. Ultimately, I’ve come to know CPI, and it’s a sloppy way to figure out pricing. I’m not saying that means the CPI has everything wrong. I’m saying that those who pay attention to it would be better off focusing on salary. At least they are tabulated better – not faster, but better. Of course, wage data is also antediluvian. Think about it: The most important data on wages is collected once a month, and that’s good enough for the US government. Advertisers and marketers collect data every second. Do we really have to wait once a month for data? We could do it once an hour if we had to, but the authorities have done it the same way for as long as I’ve been in the business. Just give the contract to Adobe ( ADBE ), Salesforce ( CRM ), Alphabet ( GOOGL ), or Microsoft ( MSFT ). We would be a better informed nation and would not have nearly the guess work we do now. But let us return to broader concerns. Not only do I not trust most government data, I don’t think it is used well. We make so many decisions based on how the Federal Reserve will react to this data and somehow think that is good enough. Sure, it makes sense if you trade futures. But it makes no sense if you are trying to invest for the long term. And here I’m not talking about how Warren Buffett bought heavily after the fluxic Battle of Midway. I’m talking about how inflation can make or break your portfolio. For example, if you look at the price of clothes or rent, and then measure it against unaffordable mortgage rates (even though only rental properties and flats are in the CPI, not houses), you can’t just see the forest from the trees – you’ve got the wrong trees. That’s because unlike the price changes the CPI relies on, the bigger picture comes from the innovation that the big companies have had to come up with to deal with the big retirement, the big immigration wall and yes, the big death of the pandemic that took maybe as many as 4 to 5 million people out of the workforce. Yes, we still lack real numbers on something so elementary. Two years couldn’t spur enough innovation to track it all — things like Chipotle inventing “Chippy,” a tortilla-making robot, or companies figuring out how to do faster price checks and add more checkout-free machines. We couldn’t get it done fast enough because the technology had a huge mismatch that it still doesn’t own up to – a love affair with enterprise software. We’ve had a generation of rich kids who became super-rich adults and then billionaire inventors and hedge fund managers because of enterprise software. That happened to be the field that smart people figured out the money was in. They weren’t there to achieve productivity gains anywhere outside the office. Certainly not the factory floor. For pedestrians. Not salable. Not disruptive enough. If they were to deviate from enterprise software, it would be for fintech because mutual fund managers loved these stories. Automation of human resources, digitization of sales, “buy now, pay later” design. But nothing about how to make food cheaper or clothes cheaper. Nothing about how to get imports cheaper to keep prices down while not wiping out millions of higher paying jobs that made it so people could go to those stores that wiped out daddy’s customers and still have money to send kids to colleges that didn’t cost 90 000 dollars a year. The mismatch between technological innovation and the welfare of our people is one of the most outrageous, sad, pathetic, greedy and disgusting trends in recent years. That was until someone finally broke it all up and shattered the paradigm, our modern Leonardo da Vinci Jensen Huang. This polymath and founder of Nvidia (NVDA) decided that if he broke the chains of Moore’s Law – the observation that the number of transistors in an integrated circuit (IC) doubles roughly every two years – he could create something that eliminated waste, making the planet better , faster, cleaner and more productive, so it didn’t cost so much for ordinary people like him. Seven years ago, Huang met a guy named Sam Altman, and they tinkered together to invent something called generative artificial intelligence. Finally we came up with something that could make things fair again, and much less inflationary. Of course, Jensen was a rather lonely person who told people about all this. Maybe because I’m still the kid holding Pop’s hand that I learned, I understood what Jensen was saying. Maybe because he’s so patient with me, much more so than Pop, I can hang on his every word. But here’s what I know now: Not only are the numbers the Fed relying on more fiction than fact, but we’re headed for the biggest wage deflationary spiral since the North American Free Trade Agreement (NATFA) and China’s open borders to the U.S. We can all sweat a government shutdown and a pact broken. We can worry about China and Taiwan and the presidential election. Me? I’m just waiting for the real wave of deflation to hit us: wage deflation. And because of the ridiculous way we tabulate data, that wave will not only hit us, it will roll over us and drive our faces into the sand. It happens. Just jump over the wave. There will be people who will worry that deflation is a prelude to recession, and that is why the yields on 10- and 20-year Treasuries are inverted. Don’t be afraid of the wave of deflation or misinterpret it as anything but wonderful for investors. You have to buy stocks at the worst moments. We must have the shares and we must do it together. (See here for a complete list of the stocks in Jim Cramer’s Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive an exchange alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a share in his charitable fund’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE INVESTMENT CLUB INFORMATION ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH OUR DISCLAIMER. NO OBLIGATION OR OBLIGATION EXISTS OR IS CREATED BY YOUR ACKNOWLEDGMENT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR REWARDS ARE GUARANTEED.
A shopper looks at the meat section of a supermarket in Los Angeles on February 13, 2023 in Los Angeles.
Mario Tama | Getty Images News | Getty Images
Maybe we’re not really that connected. Perhaps we are basing our financial decisions on financial data that is wrong. And just because we’re all using the same wrong information doesn’t make it right.
As someone who tries to make sense of everything for club members, I find myself confused – not because the possibilities are so difficult to put together, but because the results are wrong.
